Mike O’Rourke of JonesTrading has one of the best characterizations of how the stock market is viewing the situation in Washington right now.
The financial markets digested the Administration’s scare tactics on Thursday and quickly rebounded on Friday. Apparently, the sentiment tone remains that investors want to be long for the deal that everyone knows must be made. The lack of a deal has the S&P 500 futures down 50 basis points tonight. Continuing with the trend thus far in 2013, the shallow nature of most sell offs has reinforced the “buy the dip” mentality. Now it appears the purchases are being made more enthusiastically, with the mindset that a deal announcement would create an immediate 1-1.5% rally. As the S&P 500 remains within a stone’s throw of all-time highs, it is safe to say the equity market has not priced in any potential ill effects of the Government shutdown and Debt Limit battle.
This is right. With just over a week to go, the market is incredibly sanguine about how this all plays out. Nobody thinks anything can go wrong, and everybody is afraid to be short or to sell lest they miss the “deal.”
This is pretty different from recent fiscal shenanigans.
On Twitter, Matt Busigin observed the same thing:
This kind of blind bullishness and fear of missing even a shred of the rally speaks to a worrisome level of confidence.
For the market’s sake, DC better navigate this smoothly.